2015 (9) TMI 697 - AT - Income Tax

Addition of Preliminary expenses written off as deferred revenue expenses - treating the expenses are of capital nature - Held that - In view of the fact that the CIT(A) has admittedly given a finding to the effect that the bad debt claim is admissible in the year of actual write off, which is previous year relevant to the asst. yr. 2002-03, coupled with the fact that the AO has the powers to do assessment, reassessment or recomputation on the assessee in consequence of, or to give effect to, such a finding contained in an order passed by the CIT(A), the AO should have passed the order recomputing and correctly assessing the taxable income of the assessee for the asst. yr. 2002-03. By not doing so, the AO has not given effect to the finding contained in the CIT(A) s order for the asst. yr. 2001-02, and, to that extent, the AO s inertia is clearly a mistake apparent from record. This inaction is clearly contrary to the scheme of the Act which permits any assessment, reassessments and recomputation orders to give effect to, or in consequence of, any findings or directions not only in the CIT(A) s order but also orders of the Tribunal, Hon ble High Courts, Hon ble Supreme Court as well as of any Court in a proceeding otherwise than in appeal. An AO, as indeed any other authority in the IT Act, cannot turn to the assessee and say that although he has authority to do something for the good of the assessee, it is not necessary that he must exercise that authority. The inaction of the AO, therefore, is a mistake apparent from the record, and there cannot be any two reasonable opinions on whether or not the AO should give effect to the finding of the CIT(A). It is also important to bear in mind that any other view of the matter will result in a double jeopardy to the assessee which will constitute absurdity besides being grossly inequitable and patently unfair. An interpretation which leads to such absurdities, as is the settled law, is to be avoided. In view of this legal position, and having noted that the Assessing Officer has accepted the CIT(A) s order deleting similar disallowance for the assessment year 2007-08 by not challenging the same in further appeal, we are of the considered view that the impugned disallowances in each of the assessment years before us, indeed deserves to be deleted. - Decided in favour of assessee.

Summary

Issues involved:
1. Common issue in two appeals regarding the addition of expenses as deferred revenue expenses.
2. Dispute over the sustainability of the disallowance made by the Assessing Officer.
3. Whether the Assessing Officer can challenge the relief granted by the appellate authority in one assessment year when not challenged in another.

Detailed Analysis:
1. The two appeals before the ITAT DELHI involved a common issue related to the addition of expenses as deferred revenue expenses. The appeals were heard together and disposed of by a consolidated order for convenience.

2. The dispute revolved around the sustainability of the disallowance made by the Assessing Officer in the assessment years 2008-09 and 2009-10. The grievance raised by the assessee was that the addition of expenses as deferred revenue expenses was unjustified as they were of revenue nature and not capital.

3. The Assessing Officer had initially accepted a decision by the CIT(A) in a previous assessment year, where a similar disallowance was held to be not sustainable in law. However, in the current assessment year, the CIT(A) took a different stand, leading to the dispute. The Assessing Officer challenged the CIT(A)'s decision in the current year, despite not doing so in the previous assessment year.

4. The ITAT considered the legal position and precedent set by previous judgments. It referenced a case where the Supreme Court held that the revenue authorities cannot challenge a decision in one case and appeal against the same decision in another case without just cause. The ITAT emphasized that such differential treatment on the same set of facts is impermissible in law.

5. The ITAT further analyzed the hyper-technical nature of the issue and the timing of the deduction. It referred to legal provisions indicating that orders to give effect to findings in appellate orders can be passed at any time, emphasizing the importance of correctly assessing taxable income based on such findings.

6. Ultimately, the ITAT concluded that the relief granted by the CIT(A) in deleting the disallowances deserved to be upheld. It directed the Assessing Officer to delete the impugned disallowances in each of the assessment years under consideration. The decision was based on the legal principle that when a public authority has the power to act for the benefit of the public, there is a corresponding duty to exercise those powers when circumstances warrant it.

7. The appeals were allowed, and the decision was pronounced in open court, emphasizing the importance of following legal principles and ensuring equitable treatment in tax matters.